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Key Takeaways
- If forecasters are correct, consumer prices likely rose 2.7% over the year in December, the same 12-month rate of increase as November.
- Core inflation, excluding food and gas, is expected to have rebounded to a 2.7% annual rate from 2.6% in November, after distortions from the government shutdown to the November data reversed themselves.
- Forecasters generally expect inflation to fall over the course of the year, because rent increases have slowed and are outweighing continued upward pressure from tariffs.
If your holiday bills were significantly higher than last year, you’re not alone.
A report on inflation Tuesday from the Bureau of Labor Statistics is likely to show the Consumer Price Index rose 2.7% over the year in December, the same annual rate as in November. Meanwhile, “core” prices, excluding volatile food and energy prices, rose 2.7% over 12 months, up from 2.6% in November, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal.
If forecasts are on target, it would represent inflation pressures edging higher after unexpectedly decelerating in November. Inflation has run hotter than the Federal Reserve’s target of a 2% annual rate since 2021, and has been pushed up in recent months by President Donald Trump’s campaign of tariffs.
Some economists believe the November report may have understated inflation because the bureau’s data collection was delayed by the government shutdown, which ended that month, possibly leading to distortions, and that December’s report will show a rebound.
What This Means For The Economy
Federal Reserve officials will likely watch the report closely for signs that tariffs are pushing up inflation more than expected. The Fed has cut its benchmark interest rate three times in recent months as the labor market has weakened, but continued inflationary pressure could force the central bank to hold off on further cuts, at least in the near term.
“Data collection issues stemming from the longest-ever government shutdown led to a surprisingly soft November CPI report,” economists at Wells Fargo Securities led by Sarah House wrote in a commentary. “Most, although not all, of these distortions should be unwound in the December report.”
The bureau was unable to carry out its price surveys until the end of November because of the shutdown, which ended Nov. 13. That’s much later than usual and coincided with Black Friday sales.
Forecasters generally expect inflation to fall over the year to some extent because housing costs have been slowing after their pandemic-era spike. Additionally, the faltering job market has meant that rising wages aren’t stoking inflation either. Both factors are likely to outweigh continued price pressures from tariffs, according to many economic forecasts.
“The two most valuable indicators for forecasting inflation further ahead—the state of the labor market and leading indicators of rent inflation—now point to lower inflation than they did late last cycle,” researchers at Goldman Sachs led by chief U.S. economist David Mericle, wrote in a commentary.
